Cisco, held-up by prime minister Tony Blair as a model for his much vaunted e-revolution, says the 12.2% tax on employee share options will strangle the UK’s vibrant and emerging hi-technology sector.

Last week Accountancy Age revealed that the tax introduced last April as part of the Social Security Act would cripple dot.com and technology firms who use share options to attract high calibre staff.

The internet auction site, QXL, received an NIC bill alone last year for almost £15m.

Chris Dedicoat, Cisco’s UK managing director, said the tax would wipe out the benefits of a high quality workforce and attractive business environment available in the UK compared to mainland Europe.

‘If the tax remains the same we will have to seriously look at where we develop our products and where we have our European support operation’, he said.

Massive expansion plans by the internet manufacturer now hang in the balance to pump more than £200m into its UK operation and take on up to 4,000 extra staff.Dedicoat said a decision would be made over the next 12, but stressed there would be no wholescale pull-out from the UK.

‘Around 80 per cent of our costs go on people’ he told the Independent on Sunday. ‘But the tax makes this impossible to budget for.’

Cisco is one of world’s largest corporations alongside Microsoft and operates from 250,000 sq ft of office space in the UK, with its main operation at Stockley Park in Middlesex.

The threat of a UK pull-out comes despite Brown’s promise in last month’s budget that he would review the possibility of shifting the NiCs from employers onto employees.

Financial director Robert Dighero of small hi-tech firm QXL last week told the Age: ‘The message the government is sending out by merely wanting to shift the burden to employees is not exactly encouraging for small hi-tech companies.’ Director-general John Higgins of the Computing Services and Software Association also slammed the tax as ‘a classic example of unjoined-up government.’

‘On one hand we have a government which says it wants to grow the electronic industry in the UK, and at the same time we have a stupid tax like this’, he said.